World reports

Stocks to watch

AAP

2012-08-20

The euro zone financial crisis is likely to be resolved in the next few months, a senior Reserve Bank of Australia (RBA) economist has forecast.

RBA assistant governor (financial markets) Guy Debelle said that the next turning point for European leaders would the meeting of the European Central Bank (ECB) on September 6, where there was a high expectation of a breakthrough.

"This ability to put a bank aid on it and defer the problem for a few more months is coming to an end," Dr Debelle told Westpac's Deeper Insights Series Forum in Sydney on Thursday.

"I don't think you'll have this continual pattern we've had for the last two years where things get bad, they get close to the brink and then they do something to pull it back," he said.

"I think whatever the decision, probably over the next three to six months will be a decision that says we really are serious and this is here for the long term, or something falls apart."

Dr Debelle said he believed that the euro zone and the European Union were in no danger of breaking up.

"Politically there is the desire for a common Europe that's been there for a few decades now, the politicians and the bureaucracy have invested a hell of a lot," he said.

Expectations for a European crisis resolution were raised at the beginning of August after ECB president Mario Draghi said he would do whatever it took to resolve the region's financial crisis that has led to Ireland, Greece and Portugal needing financial help.

German Chancellor Angela Merkel and Italian Prime Minister Mario Monti have agreed that their countries would do everything to protect the euro zone.

Two proposals have been talked about, one is the ECB to buy government bonds of nations like Spain and Italy to help drive down borrowing costs for those countries.

The other is giving the European Stability Mechanism bailout fund a banking licence to ensure it would have a better stream of funding.